For years Singapore's manufacturers complained that export
competitiveness was being hurt by the island's strong dollar. Yet even
though the Singapore dollar has now declined 18% against its U.S.
counterpart since last July, exporters aren't seeing any relief. Exports
are sliding downwards, the May trade figures confirm, and the prospects
of a pick-up any time soon are limited. Guonan Ma, a senior economist at
Salomon Smith Barney in Hong Kong, points out that trade flows are
shrinking across Asia, and regional hubs like Hong Kong and Singapore
are inevitably feeling the pinch.
The gloomy picture for exports has prompted several brokerage
houses
to revise their economic-growth forecasts downwards; some are even
predicting that the economy will shrink for the first time since 1985.
There are two reasons why Singapore's falling dollar hasn't heed
boost exports. First, electronics goods, which account for 70% of the
island's non-oil domestic exports, face global overcapacity and
declining demand. And the slide looks set to continue: Government
statistics say retained imports, which include the components and raw
materials used to produce Singapore's electronics, plunged 30% in May
from a year earlier. That presages a decline in future production of
electronic goods -- and hence of export growth. "These are sobering
figures," says Rajeev Malik, a senior economist at Jardine Fleming in
Singapore.
Second, other regional currencies -- such as the Malaysian ringgit
and the South Korean won -- have tumbled much more sharply than
Singapore's, making Singaporean exports even less competitive in the
global market. A weak yen similarly enhances the competitiveness of
Japanese exports, bringing further pressure on exports from Singapore
and other regional countries.
Many economists expect the yen to remain limp, ending 1998 at
around
145 to the U.S. dollar. That should he nudge the Singapore dollar even
lower. The Japanese currency is believed to carry a 20%-25% weightage in
the basket of currencies that the Monetary Authority of Singapore uses
to determine the value of the local dollar. (The MAS doesn't divulge the
exact weights.)
As a result, most year-end forecasts for Singapore's currency
put it
at 1.75 to the dollar (down in value from 1.61 in mid-June). Given that
the island's exports haven't yet benefited from a weaker Singapore
dollar, few are betting that the gloom will end any time soon for local
factory owners.